Unclimbable Wall Of Worry
Investors have been cast upon an unclimbable wall of worry, and what comes next could be a financial market crash that dwarfs the 2008 financial crisis.
There is no need for me to sugarcoat things, for you have the Fed’s Beige Book, which indicates “little to no change” in economic activity since last month, and the latest IMF report with the “global economy limping along” narrative.
Remember in July 2005, Fed chair Bernanke supported the bubbly housing market right before the wheels came off the mortgage subprime bonds, leading to the 2008 financial crisis, credit squeeze, and Great Recession.
Don’t look for the chiefs of these institutions to give you a heads-up to head for the hills.
Let me be brutally frank with you; the shit is hitting the fan on multiple fronts, and maybe we are in the relatively calm period (for markets) before the storm.
The VIX, the fear Index, is soaring at 19.2 at the time of writing, and in a piece entitled Risk Indicators, posted October 2022, I wrote, “The VIX is a tool to protect capital and even profit from chaos.
If investors decided to hold their stock positions, not wanting to realize a loss, they could hedge to protect their capital by buying the VIX, “ I wrote.
An unclimbable wall of worry could mean the VIX bull run on fear has legs
Geopolitics is the SHF on multiple fronts, looking more like WW3, creating a wall of worry for investors.
The ongoing Ukraine war in Europe is escalating with attacks on Western European infrastructure. Damage to an undersea gas pipeline between Finland and Estonia is being reported as an alleged act of sabotage. NATO vowed to respond if they find Russian fingerprints.
Eye for an Eye could lead to both sides walking along a WW3 MAD path.
The Israeli war is now a two-front war with the Israelis and its US allies fighting to the death Hamas in the Gaza Strip and Lebanon. Iran has vowed to get involved.
We are in the Dark Ages, a new world disorder, where barbaric acts are happening in 2023. Brace yourselves, it is going to get very ugly.
Unclimbable wall of worry where yields keep heading higher
With all creatures great and small facing an existential threat in WW3, the topic of finance seems irrelevant. But here goes; currencies have a history of not doing well in times of war.
“The one thing you can be quite sure of is if we went into some very major war, the value of money would go down — that’s happened in virtually every war that I’m aware of. The last thing you’d want to do is hold money during a war,”said Warren Buffett.
So if cash is trash in wartime, why own bonds, which is not much more than a promise to receive a bundle of cash sometime in the future?
Inflation will keep going higher because war is inflationary. War in the Baltics and the Middle East means higher energy prices, food inflation and more disruptions to supply chains.
Paper is no safe haven in war, so treasury yields could keep going higher. Banking crisis could worsen in the backdrop of rising yields. We have no precedence to WW3.